How to proceed with minor son's Beneficiary IRA?

Forum|Forum|5 years ago
May 20, 2021
1 reply
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My son (12) is inheriting a modest Beneficiary IRA from a relative.

I am trying to make out how best to proceed. I am a single dad, and I will be paying for my son's college.

I need to know things like:
- Does it make sense to cash in just enough when he is 18 to not trigger income taxes for him, as he will not be working then (just going to college)? (and to repeat this when he is 19, etc)

I want to avoid any taxes now, as that might trigger kiddie tax (his mother has custody, but she makes half of what I make, so any cash event for the Ben. IRA could be expensive for him/me/her)

- When does the 10 year rule start? When he is 18?

Also, because it was my mother who passed away, I am the one setting up the Ben. IRA, etc.

So, can - I - be the custodian of my son's Ben. IRA account (and invest it properly) until my son is 18?

Or does the custodial parent HAVE to be the custodian of the account?

I tried to find a CPA to answer these questions, but they just want to do my taxes, not answer simple questions like this...

Thanks.

Mac

macuser_22

Alumni - Champ

An inherited IRA must be kept in the name of the deceased with the beneficiaries SSN on it. The IRA custodian can transfer it to a benificuary account but must still be keep in the deceased name. (The custodian is the financial institution holding the IRA).

If the deceased was of the age requiring yearly RMD's then that must continue each year. (The IRA custodian can help with the RMD requirements.)

See IRS Pub 590B for details.

https://www.irs.gov/publications/p590b#en_US_2020_publink1000230538

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

fanfare

Level 15

When you claim the IRA (fill out the paperwork) the IRA will be in your son's account.

Since he is a minor, you (the parent) will also be authorized to act on the IRA on his behalf.

The 10-year rule has started, but under that rule you can elect to take no money out in any year.

A partial distribution even from a modest IRA could trigger the kiddie tax.

IRS Pub 590-B:

If the individual designated beneficiary is not an eligible
designated beneficiary, the beneficiary is required to fully

distribute the IRA by the 10th anniversary of the owner's
death under the 10-year rule.

An IRA beneficiary
is an eligible designated beneficiary if the beneficiary is
the owner's surviving spouse, the owner's minor child, a
disabled individual, a chronically ill individual, or any other
individual who is not more than 10 years younger than the
IRA owner.